Hot off the press. We received the press release yesterday announcing that Yahoo had purchased Inktomi for $235 million. To someone who wasn’t familiar with the competitive search engine landscape, this probably doesn’t mean much. But to those of us who have been following some of the twists and turns in the Yahoo story over the past few months, this one’s a doozy.

Previously on Yahoo Happenings

To recap. In October, Yahoo renewed it’s deal with Google to provide third party search results. Yahoo had a previous deal with Inktomi to provide these search results prior to their agreement with Google. But, in a surprising step, Yahoo not only showed these results but pretty much abandoned their own directory results in favor of the Google listings. As I mentioned in a previous article about the Yahoo agreement, the move only made sense if Yahoo was admitting defeat in the search relevance race.

At the time of the announcement, there were two facts that didn’t attract much attention. Perhaps today’s announcement might change that. First of all, there was no time frame mentioned in the Google deal. Second, the deal was a non exclusive. Yahoo could choose to show other third party results if they wished.

Cashing in on Paid Submissions

One thing that the Inktomi deal brings to Yahoo is a large slice of the increasing paid submission market. Inktomi’s Index Connect and Search Submit are two of the more successful programs where webmasters pay to ensure that URL’s are included in a search engine’s index. Index Connect is a XML based feed that ensures that large, dynamic sites can bypass the Inktomi spider and pump their content directly into Inktomi’s index. Search Submit is a yearly fee charged on a per URL basis that guarantees a visit every 48 hours from Inktomi’s spider.

In the last fiscal year, Inktomi reported $48 million in revenue from web search services. Perhaps Yahoo is looking to this revenue to replace their $299 Express Submission Fee. This once essential search engine marketing cost was made largely irrelevant with the Yahoo/Google deal.

Who’s the Spider of Choice?

The big question raised by the deal is what happens to Google now? Will Yahoo replace Google with Inktomi? Will they share equal billing on the Yahoo marquis? Or will Google stay in place while Yahoo finds other uses for Inktomi?

To me, it only makes sense for Yahoo to eventually replace Google with Inktomi. Yahoo has always found the need to back up its directory results with listings from a spider based engine. In fact, Yahoo’s recent move to Google listings has pretty much rendered their own directory listings irrelevant. This put Yahoo in the precarious position of depending on a third party to provide its main traffic draw. By purchasing Inktomi and lessening its dependence on Google, Yahoo is in a much more defensible position.

Also, the Google partnership did nothing to add to Yahoo’s bottom line. With Inktomi, they can produce their own search listings and pocket the revenue from Inktomi’s paid submission programs. Economically, the move to Inktomi appears to make sense.

But the question remains, can Inktomi compete with Google? Yahoo has already seen a large percentage of their search traffic move to Google because of superior search relevance and performance. The move to Google, which didn’t seem to make much sense at the time, appeared to be a last ditch effort to stem the flow of traffic from Yahoo to Google. If Yahoo replaces Google listings with Inktomi ones, will Yahoo users come out the winners? While Inktomi is no slouch when it comes to search relevance, it has yet to win a head to head showdown with Google. The fact that Inktomi is now owned by Yahoo won’t suddenly make it a better search engine.

And Then There’s Overture

Yahoo’s other source of search revenue comes from their agreement with Overture. By all accounts, this is a very lucrative deal that gives Yahoo up to 65% of the revenue that comes from the Overture paid placements appearing on its site. The deal was so sweet, in fact, that Yahoo has appeared to drop plans to develop their own paid placement option.

Does the Inktomi deal mark a move by Yahoo to consolidate their search business under Yahoo ownership? If Yahoo’s plans are to dump Google, it certainly explains why the two parties couldn’t reach a syndication deal for Google’s own AdWords listings. Perhaps Yahoo is suddenly looking afresh at developing a paid placement program after it's current deal with Overture expires (in April 2005). The purchase of Inktomi does give them a ready made search partners network that could display Yahoo paid listings. Inktomi currently provides search results to Lycos, Hotbot, MSN, About, Looksmart, and, ironically, Overture.

Where Does This Leave MSN?

In looking at Inktomi’s current search partner network, one thing becomes clear. Inktomi has always been able to provide third party search results without fear of conflict because they weren’t in the search portal business. With Yahoo’s latest shopping spree, this is no longer the case. Will Lycos, Looksmart, and, most importantly, MSN, be comfortable climbing into bed with their main competition in the portal biz? Is a move to Google any easier to swallow?

This situation brings on a number of interesting scenarios. With the weight of Yahoo behind it, Inktomi could become a player again in the search industry. Alternatively, if Inktomi’s current partners jump ship and go to Google, it gives Google a virtual stranglehold on search. Finally, if the partners decide that neither Google nor Inktomi are acceptable, will it open the door to a new player, like Fast or Teoma?

Stay Tuned for More

With the announcement slipping in just before the holidays, it passed without the attention it would have drawn at another time of year. The reason this announcement is so important in the search industry is that it’s a major knock to the current balance of power. Partnerships in this business are fragile enough at the best of times, and the Yahoo/Inktomi deal could set in motion a chain reaction that will drastically alter the nature of the search industry landscape. And just when you thought things were getting mundane with the major search portals!